• Dollar remains pinned down to start the new week
• Major central bank decisions to dominate the agenda in trading this week
• ECB’s de Guindos: Our projections show inflation will hover around 2% by end of 2025
• ECB’s Kažimír: Will almost surely wait until December for next rate cut
• Eurozone July trade balance €21.2 billion vs €22.3 billion prior
• Italy August final CPI +1.1% vs +1.1% y/y prelim
• Switzerland August producer and import prices +0.2% vs 0.0% m/m prior
• SNB total sight deposits w.e. 13 September CHF 466.8 bn vs CHF 455.9 bn prior

Markets:

• USD lags on the day
• European equities mixed; S&P 500 futures down 0.1%
• US 10-year yields down 0.5 bps to 3.643%
• Gold up 0.2% to $2,581.04
• WTI crude up 1.0% to $69.36
• Bitcoin down 0.8% to $58,663

There weren’t any headlines that really stood out on the session but that didn’t stop traders from kick starting the week with a bit of action.

It was all about positioning flows as the dollar lagged across the board, falling against the rest of the major currencies bloc. USD/JPY in particular dipped to a low of 139.57 during the session, its lowest since July last year. That before returning back to hover in and around the 140.00 mark.

The drop in the dollar comes as yields stay pressured, with 2-year Treasury yields in particular continuing to flirt with the 2023 low near 3.55%.

EUR/USD nudged higher to 1.1120 levels while GBP/USD is contesting the 1.3200 mark, up 0.5% on the day. Meanwhile, AUD/USD and NZD/USD are both up 0.6% to 0.6745 and 0.6190 respectively. That despite risk sentiment being more tentative during the session.

European indices are a little mixed after a slightly softer start, with US futures also keeping little changed overall.

In the commodities space, gold is holding up after the break to fresh record highs last week. The precious metal is up another 0.2% to $2,581 and hoping to continue that form into the Fed later this week.

It’s all about the major central bank meetings this week and the Fed is the one most anticipated. That will keep markets on edge with positioning flows set to dominate proceedings in the run up to the meeting.

For now, it looks like traders are looking for a more dovish Fed at least.

This article was written by Justin Low at www.forexlive.com.

Late Thursday, around 1:00
PM ET, WSJ’s Timiraos published an article which seemed suggesting that a 50
bps cut was still being discussed. The market responded by raising 50 bps cut
probabilities to around 40% from 13% before the news.

Nick Timiraos is considered
a Fed “insider”, so the market is attentive to all of his pieces concerning
potential Fed decisions. The probability for the Fed to cut by 50 bps at the
upcoming meeting stand now around 60% with a total of 118 bps of easing by
year-end.

These repricing weakened
the US Dollar across the board as Treasury yields fell further. Once we are
done with the Fed decision, the focus will switch back to the economic data. In
case we start to see better figures, the market might start to pare back the
aggressive easing expected in 2025 supporting the greenback in the short-term.

For the BoC, the market
sees a 25% probability of a 50 bps cut at the upcoming meeting and a total of
68 bps of easing by year-end. Governor Macklem last week raised the prospect of
larger cuts if growth and inflation were to fall more than expected.

USDCAD
Technical Analysis – Daily Timeframe

On the daily chart, we can
see that USDCAD is testing the key resistance around the 1.36 handle. This is where
the sellers are stepping in with a defined risk above the resistance to
position for a drop back into the 1.34 handle. The buyers, on the other hand,
will want to see the price breaking higher to increase the bullish bets into
the 1.38 handle next.

USDCAD Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can
see that the pair is now trading in a tight range between the 1.3560 support
and the 1.36 resistance. The buyers will want to see the price breaking out to
the upside to increase the bullish bets into new highs, while the sellers will
look for a break lower to pile in for a drop back into the 1.34 handle.

USDCAD Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can
see more clearly the tight range and the choppy price action. There’s not much
else to add here as the market participants will wait for a breakout on either
side. The red lines define the average daily range for today.

Upcoming Catalysts

Tomorrow we get the Canadian CPI, the US Retail Sales and the US Industrial
Production data. On Wednesday, we have the FOMC Rate Decision. On Thursday, we
get the latest US Jobless Claims figures. On Friday, we conclude with the
Canadian Retail Sales.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

• It would take a significant shift in the outlook for the ECB to cut in October
• Very little new information in the pipeline before October meeting
• There is no rush to cut rates
• The safest approach is to wait for the outlook to become clearer

All this is very much a given now and they have guided markets relatively well in that regard. But at least economic developments are also playing out accordingly, so that helps with expectations. Traders are pricing in just ~39 bps of rate cuts for the last two meetings this year and not looking for a change in October as well; ~75% odds of no change to rates.

This article was written by Justin Low at www.forexlive.com.

The greenback is the laggard in trading today and is being pushed lower in European morning trade. USD/JPY is the standout as it nudges under the 140.00 mark but it’s not the only pair on the move. GBP/USD is up 0.5% to near 1.3200 and AUD/USD also up 0.5% to 0.6740 currently. Meanwhile, EUR/USD is also seen up 0.5% to 1.1128 as it threatens to break a couple of key Fib levels:

The 50.0 and 61.8 Fib retracement levels at 1.1101 and 1.1125 respectively are looking to give way today. And that could set the pair up for stronger gains if the Fed plays ball later this week.

But that’s the caveat though, is that whatever moves we’re seeing with the dollar here is going to need vindication from the Fed.

Traders are pricing in a more dovish Fed as they look for ~59% odds of a 50 bps rate cut. That just means they are either hoping for that to happen or the Fed to turn to rather dovish even if delivering a 25 bps rate cut. It might be an understatement to say that the scope for the Fed disappointing market players this week may be quite large. But it is what it is at the moment.

In the bond market, 2-year Treasury yields are continuing to flirt with the 2023 low near 3.55%. And that’s another key threshold to watch out for before we get to the FOMC meeting on Wednesday. A break lower there will likely help to pin the dollar down further in the meantime.

This article was written by Justin Low at www.forexlive.com.

• Prior €22.3 billion

Comparing to last year, the euro area trade balance is showing a surplus of roughly €128 billion from January to July. And that compares to the roughly €4 billion surplus only in the same period last year. Energy price developments are of course a big factor, leading to a drop in imports. And that in turn helping with the overall picture above.

This article was written by Justin Low at www.forexlive.com.